The report says violence, occupation and the continuous expansion of Israeli settlements in the West Bank, including East Jerusalem, are taking a heavy toll on the Palestinian economy and labor market.

Special Advisor to the ILO Director-General Kari Tapiola said the Palestinian economic situation is the worst in the past 10 years. He said the economic restrictions are formidable.

“At the same time, there is an increased drive for employment of Palestinians in the Israeli economy. When we say Israeli economy and Israeli labor market, we mean both in Israel and in the settlements,” he said.

Precarious work conditions

Tapiola said work conditions are insecure and precarious, particularly in the settlements. But he noted the minimum wage in Israel and the settlements is higher than in the occupied territories, a huge incentive for Palestinians to seek work there.

The report says prospects for finding work in Gaza and the West Bank are bleak, with unemployment soaring to 27 percent in the occupied territories in 2014. It adds that GDP per capita was nearly 30 percent lower than in 1999.

It says youth unemployment reached almost 40 percent for young men and 63 percent for young women. The ILO notes more than 70 percent of Palestinians are under 30 years of age and have serious difficulties in finding jobs after completing their education.

ILO Senior Specialist on Equality and Non-discrimination in the Conditions of Work Martin Oetz told VOA this is a potentially explosive situation.

“People cope, but there is nevertheless a potential for violence and dire economic and social situations also contribute to instability and violence potential," said Oetz.

"We have seen this, for instance, in East Jerusalem where ... poverty rates continue to be very high, where we have seen the problem of youth unemployment and access to decent work for young Palestinians and this is also an issue that contributes to a climate that has its dangers,” he said.

The report says a growing number of Palestinians have access to the Israeli labor market, with or without the required permits. But up to one third of the estimated 107,000 Palestinians in the Israeli economy work in unregulated conditions that can be exploitative.

The ILO says working in Israel should be an option, not a necessity, for Palestinians.